9/02/2009 @ 6:00PM

Recession Tackles NFL Team Values

The National Football League was sacked by the recession during the past year. Tight credit markets, a precipitous decline in the number of people who could afford to buy a team and an unusually high number of franchises looking for investors combined to lower the average revenue multiple used to value teams from 4.7 to 4.4.

Although the average team enterprise value (equity plus debt) remained unchanged from a year ago at $1 billion, eight teams declined in value. The biggest losers: Oakland Raiders (-7%), Detroit Lions (-6%) and Indianapolis Colts (-5%). This marked the first time in 10 years that any NFL team had gone down in value.

But the biggest challenges face owners who bought at the peak. Earlier this year Stephen Ross bought 95% of the Miami Dolphins, the team’s stadium and about 100 acres of surrounding real estate for $1.1 billion. But the Dolphins are having trouble selling tickets and have $400 million in debt. The team could post a net loss this season, and during the past few months Ross has been selling small pieces to local celebrities like Gloria Estefan and Jennifer Lopez to raise the team’s profile and shore up its balance sheet.

The Dallas Cowboys remained on top of our ranking, worth $1.65 billion, 2% more than a year ago. Thanks to the sale of personal seat licenses (the right to buy a season ticket) the team moved into their $1.15 billion stadium this season with only $200 million of debt and almost all of their season tickets sold.

The team has also leased most of the stadium’s 300 luxury suites for an average $275,000 a year. Revenue from the new stadium, net of debt service and operating costs, will be about $285 million in 2009, more than double last year (last year’s valuation of the Cowboys partly accounted for the new stadium). Once the reminder of seats, suites and sponsorships are sold the franchise will be worth in the neighborhood of $2 billion.

The finances of the NFL remain unparalleled in professional sports. Revenues for the league’s 32 teams rose 7%, to $7.6 billion primarily due to the league’s television deals with
CBS
, NBC, Fox and ESPN, which combined paid each team $94 million last season. The NFL Sunday Ticket on
DirectTV
netted each team an additional $22 million in 2008 (the broadcasting deals are also the primary collateral for the NFL’s $1.3 billion credit facility, used to finance a cheap source of working capital for owners). Ticket and concession revenue increased 6% last season, kicking in an average of $59 million per team.

With player costs (including bonuses and benefits) increasing only 4%, to an average of $135 million per team, the 2008 season represented the NFL’s third most profitable year ever: Operating income (earnings before interest, taxes, depreciation and amortization) went up 31%, to an average of $32 million.

The next few years will be much more challenging. The NFL extended its TV rights deals in recent months with CBS, Fox and NBC for an additional two more years each–through 2013. But the deals were for annual fee increases of about 2%, the smallest ever.

Also, many cities have exhausted their waiting lists trying to fill ticket inventory. The Tampa Bay Buccaneers once boasted of a 100,000-fan waiting list. Those days are over. This May the team held a select-a-seat ticket drive where fans could tour Raymond James Stadium and try out available seats. The New York Giants offered their massive waiting list a chance at $700 per game seats for their stadium scheduled to open next year. These season tickets, which require the purchase of a $20,000 personal seat license, remain available.

And the recession will be much harder for the league to overcome this season than in 2008. After the third preseason game this year there were at least 10 teams that were at risk of having at least one of their home games blacked out because not all tickets were sold 72 hours ahead of kickoff. Last season only three teams–Detroit, Oakland and St. Louis–had a total of nine games blacked out.

The biggest potential problem for NFL owners is the end of the collective bargaining agreement that expires after the 2010 season. The deal was scheduled to run through the 2012 season, but owners voted unanimously in May 2008 to opt out of the deal early. Owners complain that they are obligated to pay out 60% of revenues to players, but the owners incur expenses to increase revenues (largely through stadium construction) that are hurting the bottom line. The 2010 season is scheduled to be played without a salary cap for the first time since the 1993 season. There is a good chance that there will be a lockout by the owners. After all, not too many owners can afford to get into a bidding war with Daniel Snyder’s Washington Redskins.

The Redskins remain the most profitable team in the league, posting operating income of $90 million. FedEx Field has 91,704 seats, the most in the NFL, and even though the team has struggled on the gridiron it is hard to find an empty seat come game time. Premium seating is also a hot commodity in D.C., as the Redskins generated more than $45 million in luxury suite revenue for the Redskins last year, the most in the NFL.

The New England Patriots were the league’s second most profitable team, earning $71 million. The Patriots are the most expensive ticket in football–$118 on average for general seating–and it cost (tickets, parking, food and drink) a family of four $596 to attend a game at Gillette Stadium last season, according to Team Marketing Report, $112 more than the Chicago Bears, the second most expensive game to attend.